At Pathfinder Solutions, we’re chartered accountants and seasoned business mentors. Therefore, we often help clients identify the crucial business reports they need to focus on. Here’s an overview of how to track performance, take action, and prepare your company for surviving the new business normal (whatever that might be!)
To track, monitor, and drive your financial performance it’s vital to have a handle on your key financial reports and metrics.
In the past, extra cash in the business may have been seen as a surplus that needed to be spent on something, recent years have shown us that having these reserves is essential for a business’ long-term health and survival.
The five financial reports you should focus on
Your budget is the financial plan that’s tied in with your strategic plan. Essentially, the budget is your approximation of the money it will take to achieve your key strategic goals, and the revenue (income) and profits you hope to make during this period. It’s a benchmark you can use to measure your actuals (historic numbers) against, allowing you to see the variances, gaps, and missed targets over a given period.
2. Cashflow Statement
A cashflow statement shows the flow of money into and out of your business. Understanding these cash inflows and outflows in detail allows you to manage this ongoing process, meaning you can aim constructively for a “positive cashflow position” – where inflows outweigh outflows. In this ideal positive scenario, you have enough liquid cash in the business to cover your costs, fund your operations, and generate a profit.
3. Cashflow Forecast
As the saying goes: to be forewarned is to be forearmed. Forecasting allows you to take your historic cash numbers and project them forward in time. As such, you can see where the cashflow holes may appear weeks, or even months, in advance – and that gives you time to take action, whether it’s increasing your income stream, reducing your underlying costs, chasing up unpaid invoices (aged debt) or going to lenders for additional funding.
4. Balance Sheet
The balance sheet shows you the company’s assets, liabilities, and equity at a given point in time. In other words, it’s a snapshot of what the business owns (your assets), what you owe to other people (your liabilities) and what money and profits you currently have invested in the company (your equity). Knowing what stock and equipment the business owns, how much debt (liabilities) you’ve worked up and what the company is actually worth is incredibly useful information to have at your fingertips when making big business decisions.
5. Profit & Loss
Your P&L provides an overview of the company’s revenues, costs, and expenses over a given period of time. Whereas the balance sheet is a snapshot, the P&L is more like a moving video. It shows how your finances are progressing by demonstrating how revenue is coming in and costs/expenses are going out, rather than cash coming in and going out, as you see in your cashflow statement and cashflow forecasts.
We know this might sound like a lot but using this crucial financial information doesn’t have to be complicated – and it could make a world of difference to your business. Our team can run you through the key reports in your accounting software, to help you track performance, take action and, ultimately, survive and thrive long-term.
About Pathfinder Solutions
Pathfinder Solutions advisory team members have either owned or managed businesses, or are investors themselves, so we know first-hand the challenges you face in your world.
Sure we’re Accountants, but the best solutions in business come from focusing on more than just the numbers. Our real-world business experience delivers just that.